CHAPTER2-LECTURE2 - VI CAPITAL LOSSES INDIVIDUALS OFFSET AGAINST CAPITAL GAINS EXCESS OFFSET $3,000($1,500 MFS MAXIMUM PER YEAR AGAINST ORDINARY INCOME

CHAPTER2-LECTURE2 - VI CAPITAL LOSSES INDIVIDUALS OFFSET...

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VI. CAPITAL LOSSES INDIVIDUALS OFFSET AGAINST CAPITAL GAINS EXCESS – OFFSET $3,000 ($1,500 MFS) MAXIMUM PER YEAR AGAINST ORDINARY INCOME EXCESS – CARRYFORWARD INDEFINITELY (APPLY CURRENT YEAR LOSSES FIRST) (RETAIN SAME CHARACTER) CAPITAL GAINS – MAXIMUM TAX RATE OF 20% (10%, 18%, 8%) (BEGINNING MAY 6, 2003 - 15% (5% (0% BEGINNING IN 2008) FOR TAXPAYERS IN THE 15% TAX BRACKET OR 10% TAX BRACKET) (BEGINNING JANUARY 1, 2013 – 20% FOR TAXPAYERS IN THE 39.6% TAX BRACKET) CORPORATIONS OFFSET AGAINST CAPITAL GAINS ONLY NO OFFSET OF $3,000 ($1,500) PER YEAR AGAINST ORDINARY INCOME EXCESS – MUST CARRY BACK 3 YEARS (TO FARTHEST YEAR FIRST) THEN CARRY FORWARD 5 YEARS (IF NOT FULLY USED UP AFTER 5 YEARS, THE REMAINING CAPITAL LOSS IS LOST FOREVER) (APPLY CURRENT YEAR LOSSES FIRST) (AUTOMATICALLY BECOMES SHORT-TERM ) CAPITAL GAINS – NO SPECIAL MAXIMUM TAX RATE
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PROBLEM 44 VII. RECAPTURE OF DEPRECIATION (1) SECTION 1245 PROPERTY (1) PERSONALTY PROPERTY (2) NON-RESIDENTIAL REAL ESTATE PLACED IN SERVICE BETWEEN JANUARY 1, 1981 THROUGH DECEMBER 31, 1986 IN WHICH ACCELERATED DEPRECIATION WAS USED RECAPTURED AMOUNT IS LESSER OF: (1) RECOGNIZED GAIN OR (2) ALL DEPRECIATION TAKEN ASSUME THE FOLLOWING FACTS FOR A SECTION 1245 DEPRECIATION RECAPTURE ILLUSTRATION: EQUIPMENT ORIGINAL COST - $100,000 ACCUMULATED DEPRECIATION - $55,000 (ACCELERATED DEPRECIATION) SALES PRICE - $110,000
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EXAMPLE – FORMAT ORIGINAL COST $ 100,000 LESS: DEPRECIATION TAKEN 55,000 = ADJUSTED BASIS $ 45,000 ======== AMOUNT REALIZED (SALES PRICE) $ 110,000 LESS: ADJUSTED BASIS 45,000 = RECOGNIZED (REALIZED) GAIN $ 65,000 ======== SECTION 1245 GAIN $ 55,000 * (ORDINARY INCOME) + SECTION 1231 GAIN (LONG-TERM CAPITAL GAIN) 10,000 ** = TOTAL RECOGNIZED GAIN $ 65,000 ======== * - LESSER OF $65,000 (RECOGNIZED GAIN) OR $55,000 (ALL DEPRECIATION TAKEN) ** - PLUG AMOUNT ($65,000 (RECOGNIZED GAIN) MINUS $55,000 (SECTION 1245 GAIN – RECAPTURED AMOUNT)) (ALL OF THIS IS IDENTICAL FOR INDIVIDUALS, CORPORATIONS, PARTNERSHIPS, S CORPORATIONS AND TRUSTS (AND GENERALLY ESTATES))
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(2) SECTION 1250 PROPERTY (1) RESIDENTIAL REAL ESTATE (2) NON-RESIDENTIAL REAL ESTATE OTHER THAN NON-RESIDENTIAL REAL ESTATE PLACED IN SERVICE BETWEEN JANUARY 1, 1981 THROUGH
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